The future is bright
May 30, 2000
By Elisa Martinuzzi, UK-iNvest.com
It could hardly have been a better day for Vodafone AirTouch (VOD). The undisputed leader in global wireless communications announced the sale of Orange to France Telecom (PFTE) for œ25.1bn in a combination of cash and shares. And as Orange and its new parent company were outlining details of the acquisition in London's Waldorf Astoria, across the road in The Savoy, Vodafone presented a set of very fine (and better-than-expected) year-end results.
The news perked up Vodafone's share price, which rose 20.75p to 302p, its first close above 300p for more than a month. This could be the beginning of a period of recovery, say analysts. The Orange sale will finance most of the costs of the newly acquired third-generation (3G) licence and the new networks required. Moreover, even if Orange has boosted its pan-European standing by joining FT, Vodafone is still the region's leading player.
Top of the league
Vodafone had bought Orange through its purchase of Mannesmann. It was forced to sell Orange to comply with European Union competition rules, but the sale did not appear a difficult one for either parties.
"Vodafone is still very much in the lead and everyone else is still playing catch-up," said John Tysoe, a telecoms analyst at WestLB Panmure. Michel Bon, the chairman and CEO of FT, did not disagree. "Of course we're here to challenge Vodafone," he said in response to a journalist's question. Hans Snook, the CEO of Orange, who will remain at the helm, said: "We want to be the biggest competitor to Vodafone."
The comments underscored Vodafone's leading position in the UK and across Europe. According to Bon, Orange and FT's mobile arm, Itineris, had a combined subscriber base of 21.1 million at the end of March 2000, significantly smaller than Vodafone's 28.9 million customers in Europe, Middle East and Africa. Bon estimates that Orange, as the combined Itineris and Orange will be called, will reach 30 million by the end of the year.
In the UK, Vodafone had a 32% market share at the end of March, compared to Orange's 22%.
While Orange may be the fastest-growing network in the UK, and will have the leading position in France (10.9 million), the company is still only "top of the second division," as one observer put it. According to WestLB's Tysoe, it is still missing a convincing presence in Italy, for example,
In that country, FT has a 24.5% stake in Wind, one of the country's smallest operators, with 1.9m subscribers. Deutsche Telekom also has a 24.5% holding in Wind, a position that may bring the two at loggerheads. "In a world where companies are trying to associate customers with their own portals, that will be a difficult position to manage," said Tysoe.
Vodafone, on the other hand, has a controlling stake in Omnitel Pronto Italia, one of the leading wireless providers.
Outside Europe, Orange has and will have a limited presence. Vodafone, on the other hand, already has a presence in the US, where it boasts over 10 million customers. While the growth of the US market will be overshadowed by that of Europe in the short term, the US presence will give Vodafone a scale advantage over all other European players.
Money, money, money
The numbers also speak well for Vodafone. The company will get œ13.8bn in cash and œ11.3bn in new FT shares at ×140.20 a share from the sale. FT has underwritten to buy back the bulk of the shares issued, but Vodafone is expected to sell the stock on to the market after the six-month lock-up period expires.
Vodafone would have fetched a higher price for Orange a few months ago, but the 30% return it has made on the investment in the space of just a few months is far from disappointing. Moreover, analysts believe the FT stock will perform well. If the euro appreciates, as many expect, the stock component of the sale should prove lucrative for Vodafone.
And the greater the cashflow, the quieter the concerns about Vodafone's debt position. In recent weeks, investors have rightly worried about the costs of 3G licenses. The almost instant receipt of œ25.1bn should ease those worries, in regards to Vodafone, at least.
Beyond the headlines
With news of the Orange sale dominating the news, Vodafone's strong results were somewhat overshadowed, even if they beat expectations. In the year to March 31, earnings before interest, tax, depreciation and amortisation, as well as exceptional items, rose 30% to œ3.95bn, slightly ahead of analyst forecasts. Pretax profit before goodwill and exceptionals rose 145% to œ2.15bn. Earnings per share rose 25% to 4.71p.
"By any standard, the year has seen exceptional progress for Vodafone," said Chris Gent, Vodafone's CEO. "In the course of the year, we saw the closure of the AirTouch transaction and agreements with both bell Atlantic and Mannesmann... The effect of all these transactions collectively is to more than quadruple the size of the business in a year when we achieved outstanding underlying growth on all measures."
Just as Vodafone has proved, things can turn round very quickly. But Vodafone will be in a leading position for some time. |
